ASIA OFFSHORE DRILLING LIMITED INTERIM CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS 31 MARCH 2011
Statement of Comprehensive Income For the three-month period that ended on 31 March 2011 and for the period from 29 October 2010 (date of incorporation) to 31 March 2011 Consolidated Company For the For the For the period from For the period from three-month 29 October three-month 29 October period that 2010 (date of period that 2010 (date of ended on incorporation) ended on incorporation) 30 March to 31 March 30 March to 31 March 2011 2011 2011 2011 Notes US Dollars US Dollars US Dollars US Dollars Administrative expenses 10 (268,043) (401,765) (263,086) (357,011) Foreign exchange gains 149,316 149,316 149,316 149,316 Operating losses (118,727) (252,449) (113,770) (207,695) Finance income 14,994 74,212 14,994 74,212 Losses before income taxes (103,733) (178,237) (98,776) (133,483) Income tax expenses - - - - Losses for the period (103,733) (178,237) (98,776) (133,483) Other comprehensive income - - - - Total comprehensive income for the period (103,733) (178,237) (98,776) (133,483) Basic losses per share 11 (0.005) (0.010) (0.005) (0.008) Diluted losses per share 11 (0.005) (0.010) (0.005) (0.008) The accompanying notes are an integral part of these consolidated and company financial statements. 3
Balance Sheets As at 31 March 2011 Consolidated Company Notes US Dollars US Dollars Assets Non-current assets Rigs and equipment - under construction 5 73,003,704 - Investments in subsidiaries - cost method 6-73,101,952 Total non-current assets 73,003,704 73,101,952 Current assets Other current assets 16,877 392 Cash and cash equivalents 7 24,298,545 23,098,602 Total current assets 24,315,422 23,098,994 Total assets 97,319,126 96,200,946 Equity and libilities Equity Ordinary shares 9 20,000,100 20,000,100 Share premium 9 75,867,493 75,867,493 Deficits (178,237) (133,483) Total equity 95,689,356 95,734,110 Current liabilities Amounts due to subsidiary - 1,083 Amounts due to major shareholder 12 1,594,630 448,913 Amounts due to other related parties 22,340 10,440 Accrued expenses 12,800 6,400 Total current liabilities 1,629,770 466,836 Total liabilities 1,629,770 466,836 Total equity and liabilities 97,319,126 96,200,946 The accompanying notes are an integral part of these consolidated and company financial statements. 4
Statements of Changes in Shareholders Equity Consolidated US Dollars Share Note Share capital premium Deficits Total Balance at 29 October 2010 - - - - Comprehensive income Total comprehensive income for the period - - (178,237) (178,237) Transactions with owners 9 Proceeds from shares issued 20,000,100 80,000,000-100,000,100 Transaction costs - (4,132,507) - (4,132,507) Balance at 31 March 2011 20,000,100 75,867,493 (178,237) 95,689,356 Company US Dollars Share Note Share capital premium Deficits Total Balance at 29 October 2010 - - - - Comprehensive income Total comprehensive income for the period - - (133,483) (133,483) Transactions with owners 9 Proceeds from shares issued 20,000,100 80,000,000-100,000,100 Transaction costs - (4,132,507) - (4,132,507) Balance at 31 March 2011 20,000,100 75,867,493 (133,483) 95,734,110 The accompanying notes are an integral part of these consolidated and company financial statements. 5
Statements of Cash Flows Cash flows from operating activities Consolidated Company Notes US Dollars US Dollars Losses before income taxes (178,237) (133,483) Adjustments for: - Finance income (74,212) (74,212) - Foreign exchange gains (149,316) (149,316) Changes in working capital: - Other current assets (16,877) (392) - Amounts due to subsidiary - 1,083 - Amounts due to major shareholder 192,778 148,913 - Amounts due to other related parties 22,340 10,440 - Accrued expenses 12,800 6,400 Cash generated from operations (190,724) (190,567) - Interest paid - - Net cash inflows (outflows) from operating activities (190,724) (190,567) Cash flows from investing activities Payments for rig construction 5 (71,901,852) - Payments for investments in subsidiaries 6 - (73,101,952) Interest received 74,212 74,212 Net cash inflows (outflows) from investing activities (71,827,640) (73,027,740) Cash flows from financing activities Net proceeds from issuance of ordinary shares 9 96,316,909 96,316,909 Net cash inflows (outflows) from financing activities 96,316,909 96,316,909 Net increase in cash and cash equivalents 24,298,545 23,098,602 Cash and cash equivalents at beginning of the period - - Cash and cash equivalents at end of the period 7 24,298,545 23,098,602 Non-cash transactions During the period from 29 October 2010 (date of incorporation) to 31 March 2011, the following significant non-cash transactions occurred: Unpaid liabilities for rig construction 1,101,852 - Unpaid liabilities from issuance of share capital 300,000 300,000 The accompanying notes are an integral part of these consolidated and company financial statements. 6
1 General information Asia Offshore Drilling Limited ( the Company ) is incorporated in Bermuda. The address of its registered office is as follows: Canon s Court, 22 Victoria Street Hamilton HM 12 Bermuda The Company and its subsidiaries (together, the Group ) plan to provide drilling services in shallow-water oil and gas exploration and production areas throughout the world with the following objectives: a) To support drilling works for oil and gas products and maintain oil and gas wells. b) To be an owner and operator of offshore drilling rigs including support of barges and rigs currently owned by Mermaid Maritime Public Company Limited. The Group has not entered commercial operations. The jack-up drilling rigs, namely AOR1 and AOR2, are under construction and are expected to be delivered in December 2012 and March 2013, respectively. These consolidated and company interim financial statements were approved by the Board of Directors for issue on 10 May 2011. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated and company interim financial statements are set out below. 2.1 Basis of preparation The consolidated and company interim financial statements of Asia Offshore Drilling Limited have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Standards Interpretations Committee interpretations and apply to a complete set of the interim financial statements, which include all the measurements, recognitions, and disclosures required by IFRS. The consolidated and company interim financial statements have been prepared under the historical cost convention. 7
2 Summary of significant accounting policies (Cont d) 2.1 Basis of preparation (Cont d) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. However, there was no area involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated and company interim financial statements. New accounting standards, new financial reporting standards, new interpretations, and amendments to accounting standards The following new standards, new interpretations, and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2010 and have not been early adopted: IFRS 9, Financial instruments, issued in December 2009. This addresses the classification and measurement of financial assets and is likely to affect the Group s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. Revised International Accounting Standard (IAS) 24, Related party disclosures issued in November 2009. It supersedes IAS 24, Related party disclosures, issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted. Prepayments of a minimum funding requirement (Amendments to IFRIC 14), issued in November 2009. The amendments correct an unintended consequence of IFRIC 14, IAS 19 - The limit on a defined benefit asset, minimum funding requirements, and their interaction. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. 8
2 Summary of significant accounting policies (Cont d) 2.2 Consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. Inter-company transactions, balances, and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.3 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated and company interim financial statements are presented in US Dollars, which is the functional currency of each entity of the Group and is the Group s presentation currency. 9
2 Summary of significant accounting policies (Cont d) 2.4 Foreign currency translation (Cont d) (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit and loss, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit and loss within finance income or cost. All other foreign exchange gains and losses are presented in the profit and loss within Foreign exchange gains (losses). 2.5 Rigs and equipment Rigs and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit and loss during the financial period in which they are incurred. Rigs and equipment under construction are not depreciated. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. 10
2 Summary of significant accounting policies (Cont d) 2.6 Impairment of non-financial assets Rigs and equipment and other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 2.7 Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group only has loans and receivables under its financial assets category. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group s loans and receivables is cash and cash equivalents in the balance sheet. Loans and receivables are subsequently carried at amortised cost using the effective interest method. 2.8 Offsetting financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.9 Cash and cash equivalents In the consolidated and company statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 11
2 Summary of significant accounting policies (Cont d) 2.10 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of taxes, from the proceeds. 2.11 Provisions Provisions, restructuring costs, and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost. 2.12 Revenue recognition Interest income Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate. 12
3 Financial risk management 3.1 Financial risk factors (a) Market risk (i) Foreign exchange risk The Group s transactions are mainly denominated in US Dollars, which is the same as the Group s presentation currency, so no significant foreign currency fluctuation risk exists. (ii) Interest rate risk The Group is not exposed to interest rate risk, because there are currently no significant interest-bearing assets and loans from financial institutions. (b) Credit risk Financial instruments that potentially subject the Group to concentrations of credit risk are primarily cash and cash equivalents. The counter-party to the agreement related to the Group s cash and cash equivalents are a significant financial institution. Therefore, there is no significant risk of nonperformance by this counter-party. The Group is not exposed to credit risk of trade accounts receivable at the reporting period, because the Group has not yet operated its business so there is no trade accounts receivable balance. (c) Liquidity risk The Group has capital commitments of US Dollars 283.2 million as described in Note 13. The commitments represent 80% of the shipyard s contract prices and due upon rig deliveries. The Group plans to obtain sufficient equity or debt financing for these payments prior to rig deliveries. 3.2 Capital risk management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern by issuing capital equity or liability instruments in order to maintain an optimal capital structure to reduce the cost of capital. The Group currently is in a stage of fund raising by issuing new shares. The Group s capital risk management policy depends on the progress of rig construction. 13
3 Financial risk management (Cont d) 3.3 Fair value The carrying value of financial assets and liabilities of the Group approximates their fair value. 4 Segment information The Board of Directors reviews the Group s internal reporting regularly in order to assess the performance and allocate resources. The Board of Directors measures the business based on a measure of segment financial position and profit, which is derived on the basis that is consistent with the measurement of the consolidated and company balance sheet and statements of comprehensive income, respectively. According to the Board of Directors view, there is only one operating segment, which is drilling service business so no segment information reported. 5 Rigs and equipment - under construction On 30 November 2010, the Group entered into the construction agreements with a company to build jack-up drilling rigs, namely AOR1 and AOR2. Both rigs are under construction and will be delivered in December 2012 and March 2013, respectively. Under the construction agreements, there are options to build two additional jack-up drilling rigs on substantially similar terms, conditions and specifications as those contained in the construction agreement of AOR1 and AOR2, except that the option rigs will be priced at USD 184,000,000 and USD 187,000,000, respectively, subject to variation orders or any agreed amendments to the price. The options will expire on 30 June 2011 and 30 September 2011, respectively. The Company has no obligation to exercise any of the options. 14
6 Investments in subsidiaries Investments in subsidiaries comprise investments in the following companies: Percentage of Nature of Country of holding as at Cost Name business Classification incorporation 31 March 2011 (US Dollars) Asia Offshore Rig 1 Limited Asia Offshore Rig 2 Limited Asia Offshore Drilling Pte. Ltd. Drilling Services Drilling Services Drilling Support Subsidiary Bermuda 100% 36,583,333 Subsidiary Bermuda 100% 36,518,519 Subsidiary Singapore 100% 100 73,101,952 The movement of investments in subsidiaries during the period from 29 October 2010 (date of incorporation) to 31 March 2011 is as follows: Company US Dollars Opening balance - Additional investments in subsidiaries 73,101,952 Ending balance 73,101,952 On 1 November 2010, the Company subscribed to each of 100 ordinary shares with a par value of US Dollar 1 constituting 100% of the total issued and paid-up share capital of Asia Offshore Rig 1 Limited and Asia Offshore Rig 2 Limited. The total subscription value was US Dollars 100 each for Asia Offshore Rig 1 Limited and Asia Offshore Rig 2 Limited. On 2 March 2011, the Company paid for service fees charged by its major shareholder as agreed under service agreements on behalf of Asia Offshore Rig 1 Limited and Asia Offshore Rig 2 Limited amounting to US Dollars 583,333 and US Dollars 518,519, respectively. The advance payment has no written terms for repayment, unsecured, and bears no interest. According to its substance, such transactions are classified as investment in subsidiaries. On 28 March 2011, the Company subscribed to each of 100 ordinary shares with a par value of US Dollar 1 constituting 100% of the total issued and paid-up share capital of Asia Offshore Drilling Pte. Ltd. The total subscription value was US Dollars 100. On 30 March 2011, the Company subscribed to each of 35,999,900 ordinary shares with a par value of US Dollar 1 constituting 100% of the total issued and paid-up share capital of Asia Offshore Rig 1 Limited and Asia Offshore Rig 2 Limited.. The total subscription value was US Dollars 35,999,900 each for Asia Offshore Rig 1 Limited and Asia Offshore Rig 2 Limited.. 15
7 Cash and cash equivalents Cash and cash equivalents comprise: Consolidated Company US Dollars US Dollars Deposits held at call with banks 24,298,545 23,098,602 Total cash and cash equivalents 24,298,545 23,098,602 8 Financial instruments by category The accounting policies for financial instruments have applied to the line items below: 31 March 2011 Loans and receivables Consolidated Company US Dollars US Dollars Assets as per balance sheet Cash and cash equivalents 24,298,545 23,098,602 Total 24,298,545 23,098,602 Liabilities as per balance sheet Other financial liabilities at amortised cost Consolidated Company US Dollars US Dollars Amounts due to subsidiary - 1,083 Amounts due to major shareholder 1,594,630 448,913 Amounts due to other related parties 22,340 10,440 Accrued expenses 12,800 6,400 Total 1,629,770 466,836 16
9 Share capital At 29 October 2010 (date of incorporation) Par value Number of shares Ordinary shares Share premium Total US Dollars Shares Shares US Dollars US Dollars 1 100 100-100 Proceeds from additional shares issued 1 20,000,000 20,000,000 75,867,493 95,867,493 At 31 March 2011 1 20,000,100 20,000,100 75,867,493 95,867,593 There are no potential dilutive ordinary shares in issue for the period from 29 October 2010 (date of incorporation) to 31 March 2011. On 2 November 2010, there was a unanimous written resolution of the shareholders to approve the increase of registered share capital from 100 ordinary shares with a par value of US Dollar 1 per share to 20,000,100 ordinary shares with a par value of US Dollar 1 per share. The Company registered the increased share capital with the Registrar of Companies Department on 8 November 2010. The Company issued shares in Norwegian Krone ( NOK ) amounting to NOK 587,000,000 (or US Dollars 100,000,000). On 17 November 2010, the Company partially received proceeds from the issued shares after deducting underwriter fees of US Dollars 79,458,671. The Company had other expenses relating to the share issuance totalling US Dollars 446,907, which was paid amounting to US Dollars 146,907. The remaining US Dollars 300,000 was payable to the major shareholder as at 31 March 2011. The underwriter fees and other expenses relating to the share issuance were offset with share premium. On 25 January 2011, the Company subsequently received the remaining cash from the underwriter amounting to US Dollars 17,005,045, including foreign exchange gains of US Dollars 149,316, which were recognised in the statement of comprehensive income. 17
10 Expenses by nature The following expenditure items, classified by nature, have been charged in arriving at total comprehensive income during the three-month period that ended on 31 March 2011 and for the period from 29 October 2010 (date of incorporation) to 31 March 2011 are as follows. For the three-month period that ended on 31 March 2011 Consolidated Company US Dollars US Dollars Management service fees 180,000 180,000 Other service fees 43,830 43,830 Other expenses 44,213 39,256 Total administrative expenses 268,043 263,086 For the period from 29 October 2010 (date of incorporation) to 31 March 2011 Consolidated Company US Dollars US Dollars Management service fees 242,000 242,000 Other service fees 112,352 74,156 Other expenses 47,413 40,855 Total administrative expenses 401,765 357,011 18
11 Losses per share Basic losses per share are calculated by dividing the losses attributable to equity holders of the Company by the weighted average number of ordinary shares issue during the period. For the three-month period that ended on 31 March 2011 Consolidated Company Losses attributable to equity holders of the Company (US Dollars) (103,733) (98,776) Weighted average number of ordinary shares in issue (Shares) 20,000,100 20,000,100 Basic losses per share (US Dollars) (0.005) (0.005) Diluted losses per share (US Dollars) (0.005) (0.005) For the period from 29 October 2010 (date of incorporation) to 31 March 2011 Consolidated Company Losses attributable to equity holders of the Company (US Dollars) (178,237) (133,483) Weighted average number of ordinary shares in issue (Shares) 17,532,568 17,532,568 Basic losses per share (US Dollars) (0.010) (0.008) Diluted losses per share (US Dollars) (0.010) (0.008) 19
12 Related party transactions The Group s major shareholder is Mermaid Maritime Public Company Limited (incorporated in Thailand), which owns 49% of the Company s shares and has significant influence but not control over the Group. The remaining 51% of the shares is widely held. The following transactions were carried out with related parties: (a) Services rendered for pre-operation For the three-month period that ended on 31 March 2011 Consolidated Company US Dollars US Dollars Management fee expenses Major shareholder 180,000 180,000 Yard supervision service fees Major shareholder 1,652,778 - For the period from 29 October 2010 (date of incorporation) to 31 March 2011 Consolidated Company US Dollars US Dollars Management fee expenses Major shareholder 242,000 242,000 Lump sum fees relating to share issuance cost Major shareholder 300,000 300,000 Yard supervision service fees Major shareholder 2,203,704 - The lump sum fees relating to share issuance cost are offset with share premium when presented in the balance sheet. The yard supervision service fees relating to rig construction are capitalised to the cost of rigs and equipment. (b) Year-end balances arising from services render The amounts due to the major shareholder mainly comprise yard supervision service fees as agreed under service agreements. The amounts are payable within 30 days and bear interest at 3-month LIBOR plus 5% after the credit period is over. 20
13 Capital commitments Contracted capital expenditures at the end of the reporting period but not yet incurred are as follows: Consolidated US Dollars Company US Dollars Rig building contracts 283,200,000-21